RBZ sets record straight on rand adoption

Livingstone Marufu
The Reserve Bank of Zimbabwe has ruled out adopting the South African rand as the country’s major reference currency. Instead, authorities will spiritedly promote the full multi-currency basket and stimulate manufacturing capacity and economy-wide productivity to spur export earnings and cash circulation.
This follows vociferous advocacy by some sections of the business community for Zimbabwe to make the rand its foremost medium of exchange to ease obtaining cash shortages.
If that avenue were pursued, Zimbabwe would have to become a member of the South African Rand Union which also has Lesotho, Swaziland and Namibia.
The country would gain access to South Africa’s capital markets while receiving instruction from Tshwane’s monetary authorities.
Those for rand adoption argue that inadvertent dollarisation has made Zimbabwe’s economy “high cost” and uncompetitive, and has constricted fiscal and monetary policies.
Some economists, on the other hand, say such a move could downgrade the economy further and reduce competitiveness due to South Africa’s inflation-linked cost drivers.
RBZ Governor Dr John Mangudya told The Sunday Mail that rand adoption was out of the question.
“We have always said that the fundamental problem of this economy is not about currency, but localised production, stimulating exports and discouraging imports of finished products at all costs. We are spending more time talking about currency than production.
“We can’t talk of adopting the rand as our major currency as we already have it in the multi-currency basket introduced back in 2009. We continued to use it until such a time when some unscrupulous dealers started rejecting it.
“What guarantee do we have that if we adopt it as our major currency it won’t suffer the same fate of externalisation and hoarding? Worse still, it takes only a few hours to reach South Africa.
“We continue to urge our people to have fiscal discipline and to desist from cash hoarding and capital flight. The Bank Use and Promotion Act has been sharpened to deal with perpetrators. By so doing, we are encouraging dealers, traders and wholesales to bank surplus cash to ease the liquidity crunch.”
Economist Mr Brains Muchemwa said: “Adopting the rand is illogical as the currency has continued to be unstable over the last two years. In any case, it is still the same uncompetitive currency that the same businesspeople rejected for bond coins not so long ago.
“Unfortunately for those proposing adopting the rand as a reference currency, competitiveness is largely currency neutral. The thinking, therefore, that adopting the South African rand or adopting it as a currency of reference will cure productivity challenges and the current cash shortages is not only erroneous, but very misleading and should never be given policy consideration.”
He continued: “Rather, a weak and unstable currency is, in fact, a threat to obtaining a stable macro-economic environment which, in itself, is an important pillar of competitiveness. In any case, the rand was rejected by this market over the term of this multi-currency regime on account of its volatility.
“And with South Africa now having its own challenges and the subsequent credit rating downgrades, one wonders how adopting the rand will insulate Zimbabwe from the economic headwinds associated with South Africa’s volatile currency.
“No matter how much policy-makers would have pushed the economy towards plastic money or opted to use the rand, the cash crunch was inescapable, moreso considering that a significant part of the economy is informal.
“Therefore, to believe that by using the same currency as SA’s, Zimbabwe will be equally as competitive as its neighbour is fallacious.”
University of Zimbabwe Economics lecturer Professor Albert Makochekanwa, however, said Zimbabwe should adopt the rand.
“We should adopt the South African rand as most of our economic activities are based in South Africa. Of the US$900 million from Diaspora remittances, over US$600 million is from our people in South Africa.
“In my own thinking, adopting the rand is the best option for the country since most tourists also come from South Africa. Whatever currency we adopt, we need to produce more to boost our foreign currency reserves.”
But economist Dr Gift Mugano described rand adoption as “senseless”.
“I don’t think it makes sense to adopt the rand at the moment as the challenges the country is facing are not about currency, but productivity. As long as we don’t raise our capacity from around 30 percent across all sectors of the economy we will continue to have high pricing whether we adopt the rand or the US dollar.
“If we don’t address the macro-economics of competitiveness; that is cost of labour, utilities, cost of doing business and other supply side factors, we will still have high cost build-ups. So, from where I stand, the issue of rand adoption is just a mathematical one because if a commodity is going for US$10 at a crossrate of 1:13, we can still buy that commodity for R130 and be back to square one.
“Pricing is still high. To address these fundamentals, we need to reduce the cost of prodcution to enjoy the US dollar; not the rand. Let’s put more energy in trying to see how best we can use the US dollar as it is usable in many countries as a foreign reserve, which is not the same case with the rand, which is only used by four nations. On this issue, let’s use facts not emotions as the same people who are calling for it are the ones who rejected it a year ago.”
Zimbabwe has been fighting cash shortages since April 2016 when externalisation and hoarding of the United States dollar peaked.
A huge trade deficit has also seen Zimbabwe pump cash into other economies while generating comparably little from exports.
Government introduced bond notes last year and has been promoting point of sale transactions to provide respite to the public.